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Name: Sustainability Themed funds

Investment funds which focus on sustainability related issues and opportunities when making investment decisions

Brief description of Style

Sustainability Themed funds focus on the opportunities presented by the major social and environmental shifts that are taking place (and  accelerating) as we transition towards more sustainable lifestyles.  Funds in this group are typically positively oriented and forward looking.  Strategies may be include avoidance criteria – which helps clients to understand where they will and won’t invest, and stewardship activity aimed at encouraging investee company progress.

SRI approach applied

Fund managers select companies that fit within their published investment themes and typically favour well run, forward looking, longer term focused businesses.

Fund managers in this Style generally select companies with strong environmental, social and governance practices, often favouring those that are enabling or driving the shift towards sustainable business practices (‘solutions companies’). Some invest significantly in larger, blue chip companies that display sustainability leadership relative to their peers (‘best in sector’).

Most funds in this group aim to deliver positive real world benefits.

Many measure elements of their positive environmental and/or social impacts – particular carbon emissions .  This trend towards increased measurement is increasing as access to reliable, relevant information and data improves.

Although most agree that aiming to measure positive outcomes is desirable, it is an evolving area where strategies, opinions and methodologies vary (as a result of its complexity and the diverse challenges we face).  This is particularly important as company practices vary and may or may not take into account their (downstream) supply chains or indirect impacts when disclosing statistics about their operations. These measurements can also overlook the nature of a company’s products or services (e.g. having a high carbon footprint may be more acceptable from a manufacturer of wind turbines than a manufacturer of aeroplanes).

The ‘Policy’ and ‘Approaches’ filters on Fund EcoMarket – as well as the text and links provided – explain individual fund strategies further.  The ‘Responsible Ownership’ filter describes asset management company wide strategies and form the backdrop to individual fund strategies.

SRI Issues

Focus on environmental and social ‘sustainability’ issues: including climate change, biodiversity loss (natural capital), employment practices, stakeholder relations.

Variation across Style segment

Industries that are viewed as inherently unsustainable (unable to continue in the long term) are generally avoided – or seen as falling outside of the remit of these funds.  There are however grey areas, for example where a company is making strong progress transitioning towards more sustainable business practices or where elements of a company’s otherwise strong behaviours are suboptimal.

Although these funds have the most highly regarded sustainability strategies the funds in this group do vary.

Investee company progress towards net zero may vary, as might the measureability of their activities.

Example sectors include renewable energy, health and well-being, clean transport, education, resource use and waste management.

Some funds invest significantly in larger companies, others focus on smaller and mid-sized innovators.  Many invest across both groups.

Some of these funds, particularly those with in-house expertise, include Responsible Ownership strategies and actively use share ownership to encourage more sustainable business practices.

Impact on investment strategy

Fund managers invest in companies that are expected to succeed as a result of their approach to major environmental and social challenges, risks and opportunities.  They will, for example, aim to hold companies that are well positioned to benefit from the raising of standards across areas such as climate risk, resource efficiency, employment practices and governance related improvements.

Some of these funds invest across a wide range of sectors, others focus on a more concentrated range of companies, in line with their published strategies.

Who is this Style most likely to appeal to?

Ideal for investors who are looking to benefit from, support and/or encourage companies that understand sustainability issues and are responding to changing risks and opportunities.

Associated jargon

Sustainability, environmental, solutions, transition, net zero, impact

 

 

 

 What is Sustainability?

Commonly used explanations of sustainability refer to, or are variations of, the following:

‘…meeting the needs of the present without compromising the ability of future generations to meet their own needs.’

Source: The Brundtland Report 1987

 

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